Treasury Secretary Scott Bescent expressed concerns on Thursday about the potential negative impact of government shutdowns on economic growth, attributing the blame to Democrats for the ongoing dispute.
During an appearance on CNBC’s “Scoobox,” he noted, “This isn’t an effective way to engage in debate; it could lead to a government shutdown and a drop in GDP.” He mentioned that there’s already been an observed impact on economic growth and the working population.
His comments followed the failure to pass funding legislation in the Senate, resulting in a shutdown that took effect just after midnight on Tuesday.
“Democrats are arguing like terrorists,” Bescent stated, adding that they’re insisting on specific demands and threatening to halt government operations if those demands aren’t met.
He criticized Senate Minority Leader Chuck Schumer and House Minority Leader Hakeem Jeffries for their political maneuvering, while those leaders pointed fingers at Republicans regarding the shutdown.
Bescent remarked, “Americans are being held hostage by Chuck Schumer’s approval ratings. If they proceed with the shutdown, it will have consequences.”
According to the latest data, the US economy saw a robust growth rate of 3.8% year-over-year in the second quarter, rebounding from earlier contractions this year.
While past shutdowns have resulted in federal workers not getting paid, President Trump has now issued threats against them this time around.
Bescent was dismissive of Democratic leaders’ worries about decisions from the Federal Reserve, calling it merely a “topic.”
Understanding Government Shutdowns
- Failed negotiations between Democrats and Republicans on a funding measure led to the current shutdown.
- Following the shutdown, both the S&P 500 and NASDAQ experienced drops during Wednesday’s trading session.
- Even as student loan payments remain due, educational institutions will pause new grant activities and investigations related to civil rights.
- If the shutdown persists, the Bureau of Labor Statistics is unlikely to release its comprehensive non-farm payroll report this Friday.
- Funding for key projects like the Hudson Tunnel Project and the Second Avenue Metro expansion is currently in limbo.
A notable concern for economists is the apparent weakness in the labor market. Recent revisions indicated only 911,000 jobs were created over the past 12 months, marking the largest downward adjustment since 2000.
The Federal Reserve recently cut interest rates for the first time since last December, emphasizing that labor market issues are more pressing than inflation at this point.
According to a report from ADP released Wednesday, private employment saw an increase of over 32,000 in September, although layoffs have slowed considerably, and overall employment has dropped significantly. Employers aimed to hire 58% fewer workers in the first nine months of 2024, according to a report by Challenger, Gray & Christmas.
Updates on Government Shutdowns
This week, only two Democrats supported the Republican Budget Act, leaving five more votes necessary for a resolution.
Bescent hinted at upcoming announcements regarding “substantial support” for farmers, particularly in the soybean sector, which he teased would be shared next Tuesday.
Additionally, he mentioned that interviews are ongoing to find a successor for Federal Reserve Chairman Jerome Powell, whose term ends in May. The first round of interviews for Trump’s shortlist has been completed, with a second round set to start next week, yielding a shortlist of three to five candidates for the president’s final decision.
